Thursday, August 15, 2013

How Oligopolies Set Prices

The Justice Department filed suit to block the merger of US Air and American Airlines.  The rationale for the suit has been released and some of the salient reasons for the suit are provided in this article.  We can learn a lot about how oligopolies set prices from this article.  The airline industry is like most of the industries in the developed world.  Most of the sales revenue and profits go to a handful of firms.  They have an incentive to avoid price competition which would reduce industry profits.  Consequently, they find ways to coordinate their pricing.  This article shows how it is done in the airline industry. 

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